Company SpotLight, Pepsi Company

Pepsi Company Is A Prime Choice

I have spent all week researching which company i'm going to be investing my next infusion of cash into. Although it was a tough choice between PepsiCo(PEP), and Wells Fargo(WFC) Ultimately the research points towards pepsi and I'll tell you why. Pepsi owns a substantial amount of products other than the soft drink. They have Mountain Dew, Aquafina, Doritos, Tropicana, Cheetos and Gatorade. They have their company diversified very nicely across other drink and food choices. 

The meat and Potatoes

Pepsi has continued to beat out EPS estimates Quarter after Quarter. This means the company is earning more in revenue than what they have expected with a consistent trend.  31% increase in profit over last quarter. Revenue growth was actually negative last year, but I feel like the company will continue the positive trend that was set last quarter.

The company has had a track record of dividend growth for 43 years! It truly amazes me to see companies with such long track records, of maintaining a solid dividend growth rate.  This is truly vital to achieving my goal to financial freedom. The longer I hold on to the shares of this company, the higher percentage my dividends will be down the road. The company recently announced a dividend increase of 9.1% over last years. The company's management also released a statement that they are going to be a haven of safety for investors during the volatility of the current stock market. 

Pepsi is sitting very pretty at a whopping 7.8 billion in free cash flow.  Free cash flow or, FCF is a substantial financial measure of a company's health. The term is as basic as it gets. It is free cash that the company can do with it as it sees fit. Generally FCF will be used to pursue new opportunities that enhance the shareholder value. Examples of how free cash is used are Acquisitions of new companies, research new products or enhance current products, reduce debt and last but most important, pay dividends

Dividend yield is sitting at 2.85% for the year. This is a great entry yield to jump in on. Payout ratio is a little high for the quarter at 60.2% It is a little higher than I like but I believe this company will beat out next quarter EPS earning estimates to bring the payout ratio more in line.

Conclusion

As with any stock market purchase, their is a risk. I feel like PepsiCo is a low risk overall. They have done a great job expanding their product line and dominance over Coca-Cola. The only concern I have is the average American consumes less soft drinks year, over year due to health concerns. The company has made a great stance against this though by offering products that contain real sugar. They also just announced that they are going to be looking into using non GMO ingredients and eliminating artificial colors in their product line. I feel this will be a fantastic move to place Gatorade on the same playing field as other healthy sports drinks. I will continue to keep an eye on the long term debt of the company also. The company has controlled it very well but, I would like to see them pay it down, and keep it down.

 

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At the time of writing this article, I did not own any shares of PepsiCo.